Czech central bank keeps crown cap, eyes on comments on exit timing

Reuters Staff

3 Min Read

PRAGUE, Sept 29 (Reuters) - The Czech central bank kept its monetary policy unchanged on Thursday as expected, keeping in place a cap on the crown currency's exchange rate to help a revival of price growth.

The bank gave no details but Governor Jiri Rusnok will comment on the decision at a news conference at 2:15 p.m. (1215 GMT). The bank left its main interest rate unchanged at 0.05 percent.

The bank will also present its outlook for an exit from its pledge to keep the crown on the weak side of 27 per euro, which it has so far predicted to be around mid-2017.

The timing is key because analysts believe the crown is undervalued at the cap level. The currency is expected to firm once the policy is dropped, although the bank has made clear it would not allow the crown to strengthen sharply or reach levels around 25.7 to the euro seen before the intervention regime began in 2013.

A majority of analysts in a Reuters poll said the bank would not make any changes on Thursday, in part because three out of seven members were not present, and said they saw exit from the intervention regime in the second half of 2017.

The bank has also given assurances that it would definitely not scrap the policy before the beginning of 2017, although the head of policy department Tomas Holub has said the board may consider extending this "hard" commitment deeper into 2017 at one of the coming meetings.

The board will debate a quarterly update of its economic forecast on Nov. 3, which is when analysts see bigger chances the bank could adjust the exit outlook.

Rusnok said earlier this month he believed the exit could come after the July-August holidays next year, quashing speculation in forward currency markets that solid economic growth could prompt an earlier move.

The bank's most recent forecast, issued in August, saw inflation accelerating to 2.2 percent in the third quarter next year, just above the midpoint of the bank's target of 2 percent +/- 1 percentage point.

The bank has said it would drop the exchange rate ceiling only when it is sure inflation would sustainably meet the target.

The consumer price index (CPI) rose to 0.6 percent in August from 0.5 percent in July, exactly matching the central bank's forecast.

As downside pressures on inflation prevailed in the past two years, the bank has repeatedly postponed the expected end of its cap on the crown exchange rate. (Reporting by Jan Lopatka and Robert Muller)